By Michael D. Karsch
DarrowEverett LLP
In the wake of the 2021 Surfside condominium collapse, Florida enacted sweeping changes that affect condominium governance, structural maintenance requirements, and reserve funding obligations. These changes have not only increased the financial burden on many older associations but have also created significant challenges—and opportunities—for developers and investors looking to acquire and repurpose aging or financially distressed condominium buildings.
This article explores the current legal and financial landscape of Florida condominiums, highlighting key regulatory developments, acquisition strategies, and legal hurdles that developers must understand when considering the redevelopment of these properties.
A Tipping Point for Many Older Condos
Many older condominium buildings across Florida—particularly those along the coast—are facing the compounded effects of decades of deferred maintenance, rising insurance premiums and new legal mandates requiring expensive structural repairs and reserve studies. These issues are making it increasingly difficult for owners to sell individual units and for associations to fund necessary improvements.
Lenders have responded by tightening underwriting guidelines. Many financial institutions will no longer issue mortgages for units in buildings with significant repair needs or underfunded reserves. As a result, a bifurcated market has emerged: while newly constructed buildings are attracting eager buyers, units in older properties are languishing on the market or being sold at steep discounts.
From a developer’s perspective, this environment presents a unique opportunity to acquire high-value real estate at a potentially significant discount—provided that certain legal and logistical hurdles can be overcome.
Understanding Condominium Terminations
The process of converting a condominium back into fee simple ownership for redevelopment is known as condominium termination. In Florida, this process is governed primarily by Section 718.117, Florida Statutes, which allows for termination in two scenarios:
- Economic Waste or Impossibility: If the cost of necessary repairs exceeds the value of the units post-repair, or if reconstruction is legally or practically impossible due to changes in land use laws or building codes, termination may be approved with the consent of a threshold percentage of owners.
- Optional Termination by Vote: The statute also allows for optional terminations if at least 80% of unit owners approve the plan and fewer than 5% object in writing. However, many older declarations of condominium still include language requiring unanimous consent for termination, which can pose a significant barrier.
Developers have historically attempted to acquire a majority of units to initiate termination, but recent legal developments have made that strategy riskier. In the high-profile Biscayne 21 case, a Florida appellate court ruled that a condominium declaration requiring 100% approval to terminate could not be amended to allow for a lower threshold—despite the statute allowing termination with 80% approval—unless all owners agreed to the amendment. This ruling is under appeal and could ultimately be decided by the Florida Supreme Court.
For now, developers must proceed cautiously and understand that unless the condominium declaration explicitly incorporates future changes to Florida law (known as “Kaufman language”), the statutory 80% threshold may not apply.
Mandatory Structural Inspections and Reserve Studies
Two new statutory requirements—Milestone Inspections (Section 553.899, F.S.) and Structural Integrity Reserve Studies (SIRS) (Section 718.112, F.S.)—are increasing the financial pressure on older condominiums:
- Milestone Inspections must be completed when a building reaches 30 years of age (25 if located near saltwater), and then every 10 years thereafter. These inspections involve visual and, if necessary, intrusive analysis of a building’s structural elements.
- SIRS Reports must be conducted every 10 years for buildings three habitable stories or taller. These studies identify key components of the building (e.g., roof, plumbing, structural systems, windows) that require reserve funding for repair or replacement and provide a recommended reserve and funding schedule.
Starting in 2026, associations must begin collecting reserves based on these reports, and waiving reserve contributions is no longer permitted. For many associations, these requirements will translate into thousands of dollars in additional monthly assessments per unit owner—costs that some owners simply cannot afford. The Florida legislature recently adopted amendments that extend certain deadlines, offer temporary relief to associations, and permit financing for specific projects, but these measures merely delay rather than resolve the core issues.
Legal, Financial, and Strategic Implications for Developers
Given these pressures, many associations and unit owners are increasingly open to bulk sales of their properties to developers who can offer a clean exit. However, developers must navigate several complex issues, including:
- Voting Thresholds: Review the governing documents of the condominium carefully to understand what percentage of ownership is required to terminate the condominium or to amend the declaration. Avoid assuming that the 80% threshold applies in all cases.
- Ownership Strategy: In some instances, acquiring a critical mass of units—even without full control—can allow developers to influence the direction of the association. In extreme cases, a unit owner may petition a court to appoint a receiver to manage the association, particularly if the board is dysfunctional or non-existent. A court-appointed receiver may be authorized to facilitate a sale or termination.
- Insurance and Financing Concerns: A pending bill in the Florida legislature would prohibit Citizens Property Insurance Corporation—the state-run insurer—from covering associations that fail to complete their SIRS reports. Private insurers are expected to follow suit, further reducing insurability and making units even harder to sell.
- Lender Blacklists: Some 1,400 buildings in Florida are currently ineligible for traditional mortgage financing, mainly due to unfunded repair liabilities exceeding $10,000 per unit. This limits buyer pools and makes the units ripe for all-cash, bulk purchases.
Case in Point: Springbrook Gardens
One recent example illustrates the opportunity: Springbrook Gardens, a 77-year-old waterfront condo in Fort Lauderdale, was evacuated due to structural concerns. The 18-unit building faced a $4.5 million repair bill—an unsustainable cost for its owners. Rather than fund the repairs, the owners voted to list the property, which is zoned for 45 residential units or 58 hotel rooms, for $23 million. For developers, deals like these offer a chance to secure high-value property at favorable pricing while offering existing owners a dignified exit.
Practical Recommendations for Developers
For developers and business professionals exploring condominium redevelopments in Florida, consider the following strategic steps:
- Target High-Risk Associations: Focus on older buildings with visible maintenance issues, significant special assessments, or underfunded reserves. These properties are more likely to fail their SIRS inspections and face termination pressure.
- Review Legal Documents Thoroughly: Identify any provisions that could complicate termination, such as supermajority or unanimous vote requirements. Declarations with Kaufman language may offer more flexibility.
- Establish Dialogue Early: Engaging with unit owners and the board early in the process can help developers position themselves as a solution provider rather than an adversary. Transparency builds trust—and momentum for a bulk sale.
- Monitor Legal Developments: Stay informed on the progress of the Biscayne 21 case and any new legislation that may clarify or alter the legal framework around condominium terminations.
- Consult Legal Experts: These deals are complicated and require expert guidance on Florida’s evolving condominium laws, especially given the regional variations in enforcement and interpretation.
Conclusion
While redevelopment of aging Florida condominiums is not without its challenges, the current legal and financial landscape offers real opportunity for savvy developers. As regulatory requirements tighten and financial pressures mount on associations, voluntary termination and bulk sales may become increasingly common. Developers who are prepared, well-advised, and strategic in their approach stand to benefit from acquiring prime real estate at a discount—while offering distressed associations a much-needed exit.